Goldman Concerned With Several Of Goldcorp's Key Assets, Downgrades To Neutral

Goldcorp Inc. (USA) (NYSE: GG) has completed $4bn in capital investment over the last four years. Goldman Sachs’ Andrew Quail downgraded the rating for the company from Buy to Neutral, while raising the price target from $15.30 to $16. The new price target implies 7 percent downside.

Analyst Andrew Quail said that Goldcorp is over the capex hump, there were “imminent headwinds forming over some of the company’s key FCF generating assets, namely Penasquito (Mexico) and Red Lake/Cochenour (Canada).” He added that the grade of the company’s most valuable asset, Penasquito, is expected to decline 45 percent, resulting in cash costs rising 27 percent.

The EPS estimates for 2016, 2017 and 2018 have been raised from $0.12 to $0.29, from -$0.19 to $0.40 and from -$0.08 to $0.31, respectively, to reflect higher gold prices.

Current Thesis

Scope to lower cash costs – “GG is now in “harvest mode” after half a decade of investment; we believe the company is well-positioned to potentially reduce its AISC and exceeding its three-year guidance of $850-$950/oz,” Quail wrote.

Positive news flow Cochenour – Any updates on how Goldcorp plans on integrating Cochenour with Red Lake could boost future growth.

Since September 20, 2013, Goldcorp’s shares had lost 32 percent, versus a 19 percent gain in the S&P 500 and a 17 percent decline in the GDX, the analyst mentioned.